Your budget will help determine how much extra you can afford to pay in order to get out of debt. According to The Richest Man in Babylon, (which I highly suggest you read), "Save at least 1/10th of your income, and invest it. It is suggested that you find someone who is both honest and wise in investments. The purpose of this savings is to grow an estate for your future, and your family." I would also suggest that you become familiar with any company you invest in.

The first step in creating a budget is to gather your financial information. If you want to follow along, you'll need the following:

Income

Expenses

Regular Income items are paychecks, or other sources of income which repeat on a regular basis, like every month.

Irregular Income items are income which you get regularly, but not in a fixed amount. One possible source of Irregular Income would be profits from a small business.

I suggest you use a simple method of forecasting your irregular income, by averaging your last 12 months of irregular income. This will let you approximative what your income will be. You then put aside extra income above this amount to help cover the times when you bring in less.

The next step in the creation of a budget will be to gather, and organize your expenses. There are monthly expenses, and there are expenses which occur less frequently. Organize all of these into categories.

When it comes to bills which reappear less than every full month make a decision, on if you are going to budget a monthly amount for them, or make a special budget for those months.

Be sure to look your budget over every time you get paid. Ask yourself does this look right? Will my budget work this time? Have I allocated all of my money?

It is important that all of your money gets allocated. You want your money to work for you, and if you do not tell it what to do it will not do anything, except slip away.

I have created a monthly budget sheet for this exercise. You'll find a blank copy attached to the end of this post. This budget contains expense lines. These are blank and you will need to create "buckets" that will work for you. Here is a list of samples that you can possibly use in your own budget:

Housing and Utility Expenses

Mortgage payment or rent

Insurance

Taxes

Electric

Natural gas

Water

Garbage pick-up

Common Household Expenses

Groceries

Cleaning supplies

Laundry

Dry cleaning

Home improvement projects

Towels, linens, etc.

Clothing

Transportation

Car payments

Insurance

Gas

Routine Maintenance

Repairs

Air travel

Rental cars

Public transportation

Entertainment

Cable TV or satellite service

Dining out

Sporting events

Lessons and recitals

Clubs

Communication

Telephone

Internet access

Cellular phone

Voice mail, etc.

Health and Beauty

Hair cuts, perms, etc.

Make-up

Medical, dental, vision

Perscriptions

Weight loss, diet products

Nutritional supplements

Debt

Credit Card Payments

Loans Payments

Other Possible Items

Child care

Items for baby/elderly

Allowances for children

Book clubs, magazines, music, etc.

Fast food

Investments

Vacation

Spending money

Donations to church or charity

Gifts (Christmas, birthdays, anniversary, etc.)

Emergency fund

Coffee, soda, cigarettes, etc.

Now that you have a complete list of items, it's time to do some math. Add all income items together, then add all expense items together. Then subtract expenses from income. If there you have a zero left you, things are balanced and you are done! If there is a positive amount left after all the math, you can decide whether or not to save it, pay off some debts, or invest the money.

If there is a negative amount left, this means you might want to drop some expenses quick. Some items you might want to consider dropping include:

Internet

Cable/Satellite TV

Anything not a necessity

The final step is to use envelopes and or bank accounts to separate your money by budget. Some people work well with cash, so for them I would suggest cashing the expenses part of their income, and dividing it into envelopes. This way they see their dwindling money supply, and can choose if they want to purchase something or not.

I have one more piece of advice for those of you who write a lot of checks. I recommend you create a special account just for checks to be written from. As you go to write a check put the money in the account. Then let it sit in the account until the check clears. This will allow your checks to not bounce because you spent to much money.

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17 yrs ago when things were very tight for me I worked hard on my budget/expenses, even to the point of knowing which months were higher than others. Taxes, insurance payments, etc. Most things paid by check back then. Each month on the first went to the bank and pulled out all my alloted cash for the month, gas, food, entertainment, and put them in envelopes for each week. Rarely carried cash beyond what I was going to purchase. Did have a $20 bill hidden in wallet for emergencies. Didn't carry a Ccard. Learned to cut back on water, saving the water before the shower got hot for laundry, plants, garden in summer. Tried capturing shower water too as it has little soap. Adjusted refig lower, but safe. Lids on pans on stove. At the time had a 60 call landline fone plan. Most calls made from work. Heat rises and cold drops so lived more upstairs in winter, basement in summer and using less elec to be comfortable. Covered windows with blankets, everything to cut costs. Cut out cable. The end of that year I'd managed to save 25% of my severely reduced income and had 100's in cash squirreled away from the envelope system. -Each week would pullout cash not spent.

Learned a lot those years, still very frugal in many areas and can cut back to survival mode in a heartbeat. The books "Tightwad Gazette" helped me to see this as something good, doable, creative rather than I was poor, bad, less than...

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